Standing Committee A

[Mr. Edward O'Hara in the Chair]

Finance Bill

(Except clauses 1 to 3 and 16 to 53 and - schedules 4 to 11)

Edward O'Hara: In the present circumstances, it might be useful if, for the convenience of the Committee, I pointed out that a resolution has been passed by the Programming Sub-Committee. I call the Minister to move the same motion formally now.
 Resolved, 
 That the Order of the Committee of 26th April shall be varied as follows—
 (1) the remaining provisions of the Bill shall be taken at this afternoon's sitting;
 (2) the order of consideration at that sitting shall be as shown in the second column of the Table in the Order of 26th April; and
 (3) the proceedings at that sitting shall (so far as not previously concluded) be brought to a conclusion at 7 p.m.—[Dawn Primarolo.]

Clause 95 - VAT: Residential Conversions and Renovations

Edward Davey: Before raising a point that the Charities Tax Reform Group has brought to my attention, I shall welcome the clause in general. The Government are right to introduce an extra relief for such building work. [Interruption.]

Edward O'Hara: Order. There is rather a lot of subterranean noise in the Room. As we are picking our way through drastically changed circumstances, the Committee's co-operation would be appreciated.

Edward Davey: Thank you, Mr. O'Hara.
 The Charities Tax Reform Group is concerned about quite a technical point, which relates to the definition of accommodation in the context of building work. The Value Added Tax Act 1994 distinguishes two types of residential accommodation: ``dwellings'' and buildings 
``intended for use solely for a relevant residential purpose''— 
or RRP. In the context of building work, a dwelling must be ``designed as a dwelling''. Most communal residential accommodation is not sufficiently self-contained to qualify, so it is treated as RRP accommodation instead. 
 That can cover a range of accommodation types that are significant for charities. I am sure that you are aware, Mr. O'Hara, that relevant residential accommodation may be for people with learning disabilities, or people whose carers are having a break. A range of charities run such accommodation, which could include accommodation for people who require personal care because of old age, past or present problems with alcohol dependency, drug abuse or mental disorder. It could also include hospices or even residential accommodation for educational purposes. 
 The current law, with VAT on building work at 17.5 per cent., does not discriminate between dwellings and buildings for a relevant residential purpose. The problem with clause 95 is that, in reducing the VAT rate from 17.5 to 5 per cent., it introduces discrimination against buildings with a relevant residential purpose. I can exemplify that rather technical point in several ways. 
 The clause proposes that the 5 per cent. VAT rate will apply to building works involving renovation of dwellings that have been empty for three years or more—that is excellent—conversions of non-dwellings, commercial or relevant residential purpose buildings into dwellings, conversions of dwellings into RRP buildings, and conversions of dwellings resulting in a different number of dwellings. All building works with accommodation in those categories will benefit from the VAT reduction, but most RRP buildings will not. As I said, some will benefit, if they are conversions in the direction of a relevant residential purpose, but others will not. 
 For example, the VAT rate will make it cheaper to convert commercial premises to dwellings than to RRP buildings, and cheaper to convert an empty RRP building to dwellings than to renovate it for RRP use. That is an oversight and a mistake, and I am flagging up a technical point to the Government, rather than criticising them. That failure could result in absurdities, as is demonstrated by the fact that conversions from offices to flats, and from flats to RRP use, will qualify for the 5 per cent. rate, but conversions directly from offices to RRP use will not; instead, they will be subject to VAT at 17.5 per cent. 
 The current law treats dwellings and RRP accommodation without discrimination. To maintain that state of affairs, we would need provision in tax law to ensure that the new 5 per cent. rate applied to renovations of RRP buildings that have been empty for three or more years, conversions of commercial and similar buildings for RRP use, and conversions of RRP buildings resulting in a different number of units. 
 The Minister will agree that it would be wrong to exclude such buildings from the preferential rate, because they are being used for charitable purposes and could be used for the social inclusion purposes that the Government have in their broader agenda. Therefore, the Government should re-examine the point again—or, ideally, clarify in Committee today that they are happy to take it as read that all RRP buildings will benefit from the reduced rate, and that they will tighten up the laws to clarify that in due course. The Minister may feel that she needs to write to me on the point, but if she assures me that she will be writing in a positive way, I will not press the Committee to divide on the clause.

Dawn Primarolo: I am grateful to the hon. Gentleman for speaking to me about this issue just before the sitting started.
 The changes do nothing for residential properties in the way that the hon. Gentleman suggested. A conversion of a non-residential building into an RRP unit already benefits from having no VAT burden, so there is no need for change there. There is no relief for renovations of RRP buildings just as there is no relief for general renovations, apart from for the special category of properties that have been empty for three years. The Government did not believe that we should introduce a general relief on all renovations, and we do not plan to make such a radical change. However, I listened carefully to the hon. Gentleman's comments and I know that he has had particular representations. I would like more time to consider his points, and I will ensure that my officials have discussions with the relevant organisation to determine whether a perverse incentive has inadvertently been put into the system. Naturally, we want to follow that up. I would be pleased to write to the hon. Gentleman when I have had time to examine it in a little more detail. I know that other members of the Committee, too, are interested in the issue. 
Mr. Alun Michael (Cardiff, South and Penarth) rose—

Dawn Primarolo: I shall give way to my right hon. Friend, who has a long history of interest in charities.

Alun Michael: I am grateful to my hon. Friend for giving way to me. Sometimes, those who are involved with charities view such issues differently from those who are dealing with them in terms of taxation or legislation. The concerns set out by the Charities Tax Reform Group were intended to be helpful rather than critical, as the hon. Member for Kingston and Surbiton (Mr. Davey) made clear. Will the Paymaster General respond to the points that have been raised in the terms in which they were raised by the group concerned, to try to provide clarification? It would be helpful if all members of the Committee were to receive that information; we would then be able to engage in helpful discussion with those who contact us.

Dawn Primarolo: I entirely accept the points that have been made by the Charities Tax Reform Group. It has been genuinely helpful in exploring the issues that are of concern to it, particularly when the Government undertook the review of charities taxation. Given our timetable, I will endeavour to reply as quickly as I possibly can to the hon. Member for Kingston and Surbiton and my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Michael), and also inform other members of the Committee.
 My officials will discuss the issue again with the Charities Tax Reform Group. Obviously, in those discussions, we must clarify whether there is a problem. If there is not, further explanation and reassurance are necessary, but if there is, we must consider how to deal with it. As members of the Committee know, various vehicles are available to deal with inadvertent errors in the interval between Finance Bills. 
 I want to be helpful to the Committee, but I am sure that it appreciates that, rather than attempt a full explanation this afternoon, I would like to examine the point in detail to determine whether there is a real issue, or whether it would be wiser to ensure that full clarification is given to the Charities Tax Reform Group about how the measure will operate. 
 Question put and agreed to. 
 Clause 95 ordered to stand part of the Bill.

Clause 96 - VAT: museums and galleries

Question proposed, That the clause stand part of the Bill.

Howard Flight: My question to the Paymaster General is, if section 33 of the Value Added Tax Act 1994 can be extended to museums, why can it not be extended to other charities, or even all charities? When that suggestion has been made in the past, the Government's position has been that article 6 precludes it. Another issue that arises from the legislation is whether the specified museums and galleries will be leaned upon to give up charging, and whether their grant in aid will increase sufficiently to cover the loss from ceasing to charge. Those are not legislative matters but background to the proposed change. Finally, will the Department for Culture, Media and Sport have a role in identifying the museums? It should know more about museums than the Treasury.

Edward Davey: I thank the Paymaster General for replying in such a positive way to our debate on clause 95, particularly given the time constraints. I wrote to her with a point about this clause from the Charities Tax Reform Group, to get clarification in the context of official advice. We, and the charities group, were concerned that if a person, in this case a charity, took up the special offer within the VAT refund scheme of being effectively zero-rated for VAT, but had previously sold assets when it transferred from being a business to a non-business, tax could be due and could be collected by Customs and Excise. That person would have had an incentive not to follow the Government's lead but to counter the Government's intention.
 On 3 May the Paymaster General wrote to me saying: 
``we accept that this should not happen of the bodies that will be the subject of the special VAT scheme. Customs and Excise are developing a workable solution to this so that when the museums and galleries in question do move to universal free access, there will be no clawback of the VAT correctly recovered while they have been charging for admission.'' 
The Paymaster General set out the reasons why that had not been covered in the legislation; they are incredibly complex, and involve three separate areas of VAT law. She went on to say: 
 ``We have therefore decided to resolve this issue outside the current Finance Bill. Before the scheme is introduced on 1 September 2001, we will ensure that there are special arrangements in place for each museum and gallery affected in this way designed to suit their individual circumstances.'' 
It is important that we have that on the record, so that the staff of museums and galleries who read our proceedings do not have to worry about that point. In some cases it could involve hundreds of thousands, if not millions, of pounds. The Paymaster General's reply was extremely helpful and I thank her for her assistance.

Dawn Primarolo: What a nice Committee it is this afternoon. Long may that last—although I have a feeling it is only a lull before the storm. I thank the hon. Gentleman for put my response on the record, so that it is clear.
 I assure the hon. Member for Arundel and South Downs that extremely close consultation took place with the Department for Culture, Media and Sport on the issue of the list of the national museums and galleries to which the scheme would apply. We have to go slightly further than that Department. For one reason or another, other Departments sponsor national museums and galleries, all of which are being drawn together for a list that will be published no later than 1 September. 
 The hon. Gentleman's second question was why do we not simply admit the schemes to section 33. I am sure that he appreciates that section 33 provides for the refund of VAT to local authorities and similar bodies so that VAT does not fall as a burden on local taxation. To be covered by section 33, bodies must carry out a local authority-type function and have the power to levy directly on local taxation; that was the policy of the previous Administration, too. National museums and galleries do not undertake that type of function, so we shall publish a list of the museums that will have access to the scheme. 
 The hon. Gentleman asked why access to section 33 was so tightly controlled, but then he answered his own question. If it were not, everyone would want access, and that would not be permissible. That is the reason for our approach, which is entirely consistent with the arrangements that we can make within the nationally determined decisions in respect of the sixth directive. The exemption is, in effect, a grant. 
 Question put and agreed to. 
 Clause 96 ordered to stand part of the Bill 
 Clause 97 ordered to stand part of the Bill.. 
 Schedule 30 agreed to. 
 Clauses 98 and 99 ordered to stand part of the Bill. 
 Schedule 31 agreed to. 
 Clauses 100 and 101 ordered to stand part of the Bill.

Clause 102 - Landfill tax: rate

Question proposed, That the clause stand part of the Bill.

Oliver Letwin: The purpose of the clause is to increase the landfill tax by £1. My intervention is aimed at a single project: to discover by what proportion and by what means the Government are cutting national insurance contributions equivalently. They must be doing so, because no less a person than the Financial Secretary has assured us on various occasions that the aggregates tax, the climate change levy and the landfill tax remain fiscally neutral measures. Therefore, it must be the case that the Government will introduce a proportionate decrease in national insurance contributions, or introduce some other measure to the same effect. Strangely, so far the Committee and the House have not been privileged to hear from the Government by what means they will achieve that.
 I know that Hansard has difficulty in revealing the tone that hon. Members adopt, so I must explain that the tone in which I make these utterances is ironic. I do not expect such a statement from Ministers, but I would be delighted should they surprise me and genuinely prove that they intend this to be a fiscally neutral measure. I fear that there will be no such action. however, and this is the clause that gives the lie to the assertion that any of these measures are intrinsically fiscally neutral.

Andrew Bennett: Can the hon. Gentleman tell us whether the Conservative party still believes in the landfill tax? Does it believe that it should be going up?

Oliver Letwin: The Conservative party does not believe that the landfill tax should be raised, or that by raising it the Government are using it as an environmental measure. They are raising money. The Conservative party believes that the Government's intention is to do exactly the same thing in due course with the aggregates levy and the climate change levy.

Stephen Timms: The hon. Gentleman recently told the House:
 ``I was not in Parliament to vote for the landfill tax and I would not have voted for it if I had been.''—[Official Report, 23 April 2001; Vol. 366, c. 83.] 
 Can we infer from that that the Conservative party would reduce or abolish the landfill tax were there to be a Conservative Government after the forthcoming election?

Oliver Letwin: I have no intention of being dragged into making policy announcements by the Financial Secretary. The Conservative party does not believe that raising the landfill tax by £1 is a fiscally neutral measure. I repeat my challenge to the Financial Secretary to abandon the amusements of pre-election party games and tell us whether the assertions that we have repeatedly made over the past two years are true. The Government see such measures, as taxes and intend to raise the charges bit by bit, thereby giving rise to exactly the problems that I have always imagined might reside in such a form of tax.
 Incidentally, that is precisely the reasoning that led Liberal Democrat Members and myself to believe that the suggestion put forward by the hon. Member for Kingston and Surbiton had real merit. What is needed is some hypothecation, a Rooker-Wise amendment, some transformation into charges, or something that makes such crypto-environmental measures have a genuinely fiscally neutral effect. We would then know that the Government were not just playing party games, but intended fiscal neutrality. As things stand, we have no such assurance. We have the revelation in clause 102 that the Government now intend to show that they are willing to raise one of the three taxes without an offset.

Andrew Bennett: Does the hon. Gentleman accept that the intention of the tax was to reduce the amount going to landfill and to encourage minimisation and recycling? If all those things had been achieved, would he not agree that even putting the tax up by £1 could have been fiscally neutral, as less money would be being paid?

Oliver Letwin: The hon. Gentleman is right. The aim was noble. That is common ground on both sides of the House. We all want to see a reduction in landfill. We are not having an environmental argument, but a fiscal argument. Secondly, I do not know, and I wait to hear whether the Financial Secretary knows— although I hazard a guess that he does not—whether the rather interesting proposition that the hon. Gentleman has just put forward is true. I doubt it. It certainly was not argued in that way by Ministers on the Floor of the House when we made those points on Second Reading. As far as I know, that case has not been argued in public.
 If the Financial Secretary has an elasticity analysis that is rather better in quality than the elasticity analysis that he so signally failed to provide on tobacco duty, and it shows that the measure will be fiscally neutral, I shall withdraw my remarks. However, no such evidence has been produced, and I doubt both that the change is intended to be fiscally neutral, and that this will be the last rise. If the present Government are lucky enough—and the British public unlucky enough—and they are re-elected, all these taxes will be revealed in their true colours as items used by the Treasury to engage in taxation by stealth, which is wrong.

Edward Davey: In this year's Red Book—or, rather, the white book—table C7 sets out public sector current receipts. It shows landfill tax receipts of £0.4 billion in 1999-2000, rising to £0.5 billion in 2000-01 and staying there for 2001-02. Some rounding off may apply to those estimates, but they do not mean that the revenues are suddenly falling away as the hon. Gentleman suggested. The Government may need to continue to increase the rate of the tax.

Oliver Letwin: The hon. Gentleman has injected a degree of interest into the debate. Let us wait and find out the Financial Secretary's intentions in that regard. It would be interesting if it were established that the net effect is neutral—or, in the absence of such a rise, would have amounted to a reduction. I acknowledge that the Liberal Democrats genuinely believe in their policy. If the intention of Her Majesty's Government—the current Government, that is—is also to make the taxes work in that way, in the end they might disappear altogether. They could succeed to such an extent that people moved on to do things in a different way.
 It does not follow from the likelihood that the receipts would fall if the rate is not raised, that the rate should be raised. That is a non sequitur. We would first have to have established that the reason why the receipts were falling was something other than the effect that the tax was originally intended to have. If the reason why the receipts were stabilising or falling was that the tax was having its intended effect, there would be no reason—if it were an environmental as opposed to a tax-raising measure—to raise it at that point. 
 The Financial Secretary may be in a considerable bind here, but the Committee is fortunate in that he is both clever and honest. At this late hour of the Committee's deliberations, a little piece of history could be made, and we could gain a genuine insight into what Her Majesty's Government mean by fiscal neutrality, why the rate is being raised, and how its rise relates to past and future receipts. We could ascertain whether any studies demonstrate that the measure is fiscally neutral. If we receive answers to those questions, I might feel that part of this afternoon's proceedings have been worth while.

Edward Davey: I have been tempted by the hon. Gentleman's speech into debating the theory of how the tax will work to promote recycling, reuse and environmental improvements. He argued that if it is working, revenue will fall, and questioned the Government's motives. It is too early in the game to start reducing the landfill tax rate. The Conservative Government and the present Government were right to set a long-term strategy of gently ratcheting up the pressure with small incremental year-on-year increases in the landfill tax rate. That sent out a signal to industry and the private sector that they needed to change their ways.
 The Conservative Government introduced the tax at a relatively low rate. That was correct. With green taxes, there should be no desire to penalise different parts of industry and the private sector suddenly. We want to win support for environmental measures, and say to people that such measures are not about penalties, but about changing the market signals so that our commercial behaviour will take sustainability into account. The tax should start at a low rate and people should be sent a determined and clear signal that it will be ratcheted up. Instead of penalising people, we must make sure that the incentive is there for them to change their behaviour and their commercial and domestic processes.

Oliver Letwin: Does the hon. Gentleman agree that, first, the optimality theory suggests that such a tax, if genuinely intended to have an environmental effect, should be set at the level of the externalities—the level of the damage caused to the rest of society? I recall that the aggregates tax is so intended to be set. That would show a settled rate rather than one that increases. Secondly, notwithstanding my first point, if his logic were right, does he agree that there should be an accompanying change downwards in national insurance contributions or in some other fiscal measure?

Edward Davey: I am happy to agree with the hon. Gentleman's second point. We believe strongly in the level of neutrality in respect of environmental measures. It is a significant issue because, hopefully, it wins more public support for such an important change that is being made to our economy and our society.
 I am not sure whether I can agree with the hon. Gentleman's view on an optimal tax theory. If he does not mind my saying, his analysis of the position is static. Optimality theory in respect of tax should take in the dynamic picture. When trying to move an economy and a society from one form of behaviour to another, we cannot suddenly introduce a tax at a theoretical optimal rate. That would go against the grain of society, the grain of business and the grain of the private sector. We should aim towards what may possibly be calculated to be an optimal rate, but we cannot introduce a tax, especially the landfill tax, straight away at such a rate, partly because the information that would be required to calculate that rate does not exist. We need to see how the private sector and the public sector react as the tax is incrementally increased slowly and know whether it is sending out the right incentives. 
 There is a problem with the operation of a landfill tax in that it has created some perverse incentives. Fly-tipping has increased as people try to evade the tax. We cannot pass tax legislation in the House and assume that the net result will be positive. All the analyses suggest that it might be positive, but account is not taken of the externalities, the side effects and how people try to adjust. When people are adjusting to the tax by way of illegal activities, such as fly-tipping, we must ensure that the Government's policy is taking that into account elsewhere. 
 I have cited an example of how, if we had gone immediately into a high level of tax, we may have created some damage more widely in society. I believe that the Conservative Government got it right. The tax had a relatively low start, with a clear long-term signal. The Government are to be congratulated for continuing such a process. Their only failure is that they are not more radical in their recycling and reuse strategies. Such issues are crucial. They concern our constituents and members of all political parties. Conservative and Labour Members who want to improve the way in which businesses and organisation can recycle goods and the incentives for so doing have drafted several private Members' Bills. If there is a criticism of the Government on the matter, it is that they have not gone further with regard to wider aspects of environmental policy.

Oliver Letwin: Does the hon. Gentleman recognise that the Conservative position is not far from his, apart from in one important respect? We also want economic levers to be used to achieve desirable environmental goals, but we would prefer to see tax reductions, rather than tax increases. Where it must be so, we would rather see regulation than tax increases, and certainly any method rather than non-fiscally neutral tax increases.

Edward Davey: I am grateful to hon. Gentleman, but I suggest that he stop digging. The former Conservative Government introduced the tax, raised it when in power, and argued at the time that the tax was good. They were not reducing taxes on the level argued, but using marking mechanisms—taxation signals—to try to promote good environmental behaviour. They were right then, but I am concerned that the hon. Gentleman does not share his former colleagues' support for the approach, and that he puts regulation above taxation. In some cases, regulation can be the optimum way of securing environmental benefits, but often it is not, and taxation is the most appropriate method providing—with the very important caveat—the receipts produced are given back to the wider tax-paying community for tax reductions elsewhere. That seems to us to be the economically, socially and environmentally optimum approach.
 We will continue to support the policies, with two slight caveats from the Government. They should make the wider environmental policies in the area more ambitious than currently and, as the hon. Gentleman said, if there is an increase in receipts from the landfill tax as a result of the measures, the receipts should be given back to the private sector in reductions, presumably in employers' national insurance contributions.

Peter Luff: I am grateful to you, Mr. O'Hara, for allowing me to catch your eye. I am breaking the silence that I usually adopt in these proceedings because I have a strong and powerful constituency interest in the matter, and I am grateful for the opportunity to raise it.
 I was a passionate devotee of recycling as a child. My Corona bottles always went back to the newsagent shop, and the deposit was duly collected. It grieves me no end that modern plastic bottles are thrown away into landfill sites, and I also grieve at the way our computers litter landfill sites of the United Kingdom, which represents a scandalous failure to recycle. 
 I am all the more a passionate devotee of recycling because the Hill and Moor landfill site is in my constituency—it is called a landfill site although it is actually a land rise site. A mountain is being constructed between the villages of Throckmorton and Wyre Piddle, and that is Worcestershire's major site for the disposal of household waste, particularly since Labour members of the county council voted against the incinerator, which is a crucial part of their own waste management strategy. Never mind—that is another matter. 
 My constituents in the villages around the Hill and Moor landfill site should have the bare minimum of transport going to that land-rise site—I must get my terminology right. 
Mr. Andrew F. Bennett (Denton and Reddish) rose—

Peter Luff: I am delighted to give way, although I cannot think of what I said to prompt the hon. Gentleman.

Andrew Bennett: Is the Conservative party now for incinerators?

Peter Luff: The hon. Gentleman leads me into a full and frank confession of what happened at the party meeting in Kidderminster last week, when I am afraid that the Conservative party joined forces with the Labour party to vote against the incinerator. There you are, Mr. O'Hara, the truth will out, although I am not afraid of the truth.
 As the hon. Member for Kingston and Surbiton remarked during his contribution—I thought that he contradicted himself but he was thoughtful—there are perverse incentives for the landfill tax. The hon. Gentleman dismissed the perverse incentives by supporting the Government's strategy that, as we read in the Red Book, is part of a strategy to increase the current standard rate of landfill tax by 
``£1 per tonne for five years until 2004''. 
Therefore, this is the first stage of a long and sharp increase that is well above any projected rate of inflation, and it has had serious perverse incentives in my constituency. While I welcome the fact that there may be fewer lorries on the roads of my constituency going to the Hill and Moor site, I worry profoundly about the fly-tipping that has occurred in my constituency on both a disorganised and highly organised scale.

Edward Davey: How does the hon. Gentleman believe that we should deal with those perverse incentives? Does he believe that we should reduce the tax, abolish it, or as I do, deal with such illegal activity in other ways?

Peter Luff: One should not be a single-club golfer in such matters. All such taxes can be benign at the right level and become offensive at the wrong level. The Government are moving the tax towards the wrong level. Already, at the current level, Worcestershire farmers complain to me regularly about the fly-tipping in their fields, typically by small building and gardening contractors, but in a more organised way, too.

Stephen Timms: I cannot resist the temptation to ask the hon. Gentleman the same question. In the House, the hon. Member for West Dorset said:
 ``I was not in Parliament to vote for the landfill tax and I would not have voted for it if I had been.''—[Official Report, 23 April 2001; Vol. 366, c. 83.] 
The hon. Gentleman was in the House. Will he confirm that he voted for it?

Peter Luff: I was; I did, with a little reluctance, and in the hope that it would not be increased sharply above the rate of inflation, which is what is happening. My mental arithmetic is not what it used to be, but the increase is not far short of 10 per cent. Increasing £12, £13 or £14 rates by £1 is a smaller percentage increase, but still represents a significant increase over and above inflation each and every year.
 One company in my constituency in particular has made a large sum out of the consequences of the landfill tax. A company called Ivory Plant Hire, of which the Financial Secretary has heard me speak before, systematically fly-tipped large quantities of building refuse around Worcestershire and Herefordshire—pretending to reputable building contractors that it was reputable, and callously dumping the muck that it gathered from building sites wherever it could. 
 The fines levelled by magistrates courts are lower than the landfill tax revenues that must be paid to take refuse to proper landfill sites. That is a huge issue. We managed to persuade local magistrates substantially to increase the fines, which is welcome, and that company now seems to have gone into liquidation, but only after two years of huge environmental damage to my constituency. I fear that it is likely, like a hydra, to re-emerge with other heads after the so-called liquidation, and more damage will be done. 
 The Financial Secretary must be extremely confident that the increase, and the further increase that the Government plan should we have the further misfortune of Labour winning the coming election, can be guaranteed not to cause further perverse incentives such as the hon. Member for Kingston and Surbiton described and further environmental havoc in my constituency. I am deeply worried about this sharp increase. 
 The Government plan that moneys raised from the landfill tax will, under the landfill tax credit scheme, be turned to different purposes. I find that highly objectionable. My constituents who live around the landfill site pay the price of the activity that goes on there in, I suspect, loss of value of their homes, and certainly in the environmental impact of lorries and the visual amenity of the extraordinary mountain of rubbish growing in their back gardens. 
 At present, there is at least the prospect of the landfill tax credit scheme and some of the extra money that the Government are trying to raise going back to that community. In fact, scandalously, that has not happened in Worcestershire. The money has gone all around the county, not to the local communities around the land-rise site. However, the Government now say that they will end all that and spend the money on broader schemes to encourage recycling in the county. 
 I have no objection to recycling, as I said, but when landfill sites have a substantial environmental impact on a local community, that community should receive some of the benefit of the landfill tax credit scheme. All the benefit should not go to the wider community in order to encourage greater recycling. I find it deeply offensive that my constituents will suffer increased fly-tipping as a result of the increase, while facing the prospect, if the Government press ahead with these ill-guided policies, of not receiving the benefits that should flow from the landfill tax credit scheme.

Michael Jack: I rise to support my hon. Friend and others who have discussed fly-tipping. When I ask my local authority to respond to that problem, it says that it does not have the resources to mount in-depth observations and enforcement of the law to stop that nuisance.
 I anticipate the Financial Secretary asking the same question for the third time. I was in the Treasury when the landfill tax was introduced; I approved of it and voted for it, but there was an important proviso. The proviso was that it was fiscally neutral when it was first introduced, by virtue of a national insurance rebate. Why do the Government choose not to replicate that fiscal neutrality? We have seen and heard nothing to suggest that, at the end of the period of the application of the escalator, a review would take place of national insurance payments and a corresponding reduction would be made. 
 Given the problems and constraints on areas, situations or techniques for the disposal of waste, it is right that we should raise awareness of these issues by economic signals. However, I find it difficult to relate the different strands of Government and European Union policy over the question of waste disposal to the role played by the landfill tax. In paragraph 6.95 of the ``Financial Statement and Budget Report'', we learn: 
 ``Industry and commerce in England and Wales produce around 78 million tonnes of waste a year. Local authorities in addition collect a further 28 million tonnes''. 
That 78 million tonnes of waste is of the kind that is by and large disposed of privately by contracting organisations levying the landfill tax from their commercial customers in their invoices. One can see an immediate cause and effect in that case. However, in the case of the 28 million tonnes of waste, most people would be unaware of the effect of the landfill tax on the collective charges that they pay their local authority for waste disposal. Household waste is increasing by 3 per cent. a year, so a significant part of waste in the United Kingdom is not immediately influenced by the landfill tax. 
 The same document states that the European Union landfill directive has set a series of targets supposed to affect the amounts of waste—especially biodegradable material—that can be disposed of. However, paragraph 6.95 does not appear to relate the effectiveness of the landfill tax to the numbers. A theme of the debate has been the attempt to establish whether there is a proper cause and effect. In other words, is it an effective tax? Is it doing its job in deterring people from producing more waste? I cannot disaggregate the effect on waste of the European Union landfill directive, the subsequent measures involving tradable permits, the outcome of waste strategy 2000 and the landfill credit scheme. It is a bit of a muddle—it has not been well joined up. 
 Governments can justify changes in taxes, in the sense that they are a price put on an activity, only if it possible to see the effect.

Andrew Bennett: Presumably the right hon. Gentleman knew what the expected effect would be. How far does it vary now from what he hoped that it would be?

Michael Jack: The original imposition of an environmental tax in this area forced people to think, because an economic consequence ensued from an activity that was untaxed or unpriced—apart from the immediate marginal cost of tipping a load of waste into the local tip. The tax focused people's minds and assisted in their strategic thinking about ways of reducing a potentially avoidable cost. It was in action for a relatively short time; we were then removed from office, but we are invited to show our agreement for an increase when other measures have been introduced that may complicate the assessment of the success of the tax.

Andrew Bennett: Does the right hon. Gentleman that when he was in the Treasury, he must have made the decision whether £5, £10 or £15 was the right rate? Will he share with us the thinking that went into the introduction of the tax?

Michael Jack: I do not want immediately to retreat to the excuse that the tax was not one of mine. Other hon. Members have recognised that a sensible lower rate would have a chance of being accepted. The tax was fiscally neutral, so perhaps the rate was less important than the signal that it sent. To be honest, I cannot remember the exact arguments about why the figure was chosen. In the Treasury, I often asked officials who came to brief me, ``Why this particular number?'' Had I been directly responsible for the tax under discussion, I suspect that I would have asked the same question. Had I been able, I would have been happy to share my experience with the hon. Gentleman, but he makes a fair point.

Mark Hendrick: Will the right hon. Gentleman give way?

Michael Jack: I should first reply to the hon. Member for Denton and Reddish (Mr. Bennett). As with any pricing arrangement, the question is which one will have an effect. If we had gone too far the other way, perhaps we would have had an even bigger debate on fly-tipping than we have had today.

Mark Hendrick: How did the Government of whom the right hon. Gentleman was a member measure the effectiveness of the tax at whatever rate it was levied?

Michael Jack: If the hon. Gentleman listens to what I am saying, he will know that that is my point. Normally, a tax is left in place for a number of years and then assessed. As Treasury Ministers say, taxes are kept under continual review, but the tax had not been in operation long enough to make the definitive assessment that may be required.
 I am, however, delighted that the hon. Gentleman raises that point, because it supports my argument. The Committee is being asked to agree a further rise with the prospect of four additional rises, although it is quite difficult to know what the effect will be, particularly given the contents of paragraph 6.95, with which the hon. Gentleman will be familiar.

Mark Hendrick: To follow up my previous question, if the right hon. Gentleman were still in government, how would he measure the tax's effectiveness?

Michael Jack: With respect, the question is so hypothetical that I cannot answer it. As with all things, we started with a fiscally neutral tax. If the previous Conservative Government had continued and it was deemed that the rate should rise in order to have a further contributory effect, we might have maintained that fiscal neutrality. The important point is that the Government whom the hon. Gentleman supports are not doing that.
 Given that waste from Preston comes to a rather large tip in my constituency that is becoming very full, the hon. Gentleman might be interested in the effectiveness of the Government's waste policy, because it will eventually have an impact on his constituents. When the Financial Secretary comes to justify the Government's position, he might be able to shed a little more light on the relative effects of the different constituent elements of their policy.

Stephen Timms: I welcome you back to chairing our proceedings, Mr. O'Hara.
 I am optimistic that I can persuade the Committee that the irony expressed by the hon. Member for West Dorset (Mr. Letwin) was misplaced. It is indeed the proposal that the standard rate of landfill tax will be increased from £11 a tonne to £12 from 1 April this year. It is in fact the second of those increases, rather than the first. We are continuing the programme of pre-announced landfill tax increases set out in the 1999 Budget, which will lead to a standard rate of landfill tax of £15 a tonne by 2004. We want to send a strong signal to waste producers and waste management companies to switch away from landfill towards waste minimisation, re-use and recycling. 
 The Environment Sub-Committee chaired by my hon. Friend the Member for Denton and Reddish has carefully examined such matters. He has made a number of telling interventions in this debate and will have heard, as I have, calls from the waste management companies in the Environmental Services Association in particular for substantially higher tax levels than those proposed. Calls from the industry for £25 a tonne are not unusual; some players call for significantly more. It is an unusual experience as a Treasury Minister to be lobbied by those who pay the tax for it to be set at a higher rate. The Government took the view, which was expressed by the hon. Member for Kingston and Surbiton, that it is right to proceed cautiously and observe the effects of the steady £1 a tonne increases. That is the only way to find out what their consequences will be.

Oliver Letwin: I am interested in the Financial Secretary's remarks so far. Will he tell us why the Government argue—I have had time to check this—that the aggregates tax should be introduced immediately at the tax optimality point where its cost equals the externalities?

Stephen Timms: We have not done that; the hon. Gentleman is mistaken. The value arising from the research was £1.80 a tonne and we have set the rate at a conservative and cautious £1.60 a tonne, as I am arguing we should in this case. We are applying the same principle, which was rightly summed up by the hon. Member for Kingston and Surbiton.

Oliver Letwin: That will not do. I take it that the Financial Secretary is responsible for the relevant paper. His argument on the aggregates tax is that a cautious view was taken because there was some doubt about whether £1.80 was the figure for the externalities. That is not the same as arguing that a low rate should be chosen before being rammed upwards. He never argued that he intended to raise the aggregates tax hereafter.

Stephen Timms: No, I did not. My argument, in line with the comments of the hon. Member for Kingston and Surbiton, is that a cautious approach is right and that, by 2004, when we will have reached the £15 a tonne rate, we will be able to judge the correct tax rate for the future by using evidence and experience of the different tax rates.

Michael Jack: The hon. Member for Denton and Reddish challenged me to say why £10 a tonne was the right figure under the Conservatives. Is the Financial Secretary saying that he cannot judge whether £15 will ultimately be the correct figure until he has sucked it and seen what the effect will be in the real world?

Stephen Timms: We must know the effects of tax at different levels so that we can make an informed decision—particularly in response to representations from industry for significantly higher rates.
 The measure is already having a significant impact on waste management. The recycling of inert waste is at an all-time high, there is increased composting of biodegradable waste, and more than one third of businesses are introducing or considering minimisation and re-use of waste. Overall, as the right hon. Member for Fylde (Mr. Jack) said, increases in household waste are running at about 3 per cent. a year. Despite that, active waste disposals are quite static at about 50 million tonnes a year. We can deduce from those figures that the tax is stopping what would otherwise have been a rising trend in the use of landfill. On the inactive side, waste disposals on which the lower rate of landfill tax is paid have had a dramatic effect, with the landfill amount falling from 36 million tonnes in 1997-98 to 30 million in 1998-99, while the recycling of construction waste has grown. 
 The right hon. Gentleman rightly said that several different factors are at work, but the landfill tax has undoubtedly played an important role in moving people away from landfill. I was disappointed that the hon. Member for West Dorset was unable to explain the Conservative party's policy on the landfill tax. He outlined a policy, but I am unsure whether it was the official one. He has made it clear that he would not have voted for the measure. The hon. Member for Mid-Worcestershire (Mr. Luff) has made it clear that he voted for it with reluctance. Presumably, the right hon. Member for Fylde voted for it with enthusiasm, as the previous Government introduced the tax, and he was a Treasury Minister at the time. 
 The day after the hon. Member for West Dorset made it clear that he would not have voted for the measure, the right hon. and learned Member for Rushcliffe (Mr. Clarke), in the same debate, mentioned the landfill tax as one of his major achievements as Chancellor of the Exchequer. Most people who have studied the landfill issue would subscribe to the right hon. and learned Gentleman's view rather than to that of the hon. Member for West Dorset.

Oliver Letwin: The hon. Gentleman is selectively quoting. We could all have gladly signed up to the measure if it had contained a rule that enforced fiscal neutrality. The problem with the present construction is that it allows for precisely the move of which we are now accusing him. All hon. Members accept the benign environmental effects of the landfill tax; the problem is that it can be misused. The hon. Gentleman has been talking for several minutes—albeit with interruptions—but has not yet addressed whether the measure is fiscally neutral.

Stephen Timms: I am looking forward to reaching that part of my speech, but I must first give way again.

Andrew Bennett: I was hoping that my hon. Friend might have probed Opposition Members about how they would have dealt with the major defect of the tax when it was introduced: no money was given to the Environment Agency or local authorities to enforce the measure and to deal with fly-tipping. Another important defect is that 20 per cent. of the money raised is directed to environmental schemes managed by Entrust, which is one of the worst regulated bodies in the country.

Stephen Timms: I am grateful to my hon. Friend for his comments, and I now turn to the point about fly-tipping, because it was also raised by the hon. Members for Kingston and Surbiton and for Mid-Worcestershire and the right hon. Member for Fylde.
 I agree with my hon. Friend that more resources were needed to deal with fly-tipping, and the Government have introduced several improvements in that regard. However, the Committee should be aware that the majority of fly-tipped waste is household waste, and, as the right hon. Member for Fylde said, householders do not pay the landfill tax. The Tidy Britain Group has conducted research on that matter. Householders are not provoked to fly-tip their waste because of the landfill tax. 
 The situation is different for commercial operators, such as the company in the constituency of the hon. Member for Mid-Worcestershire. However, I was heartened by his remarks about the effectiveness of measures such as extra fines and the work of the Environment Agency in dealing with the problem in that particular case. 
 The Government take the problem of illegal waste disposal seriously. The penalties are severe: they include unlimited fines and up to two years in prison. I hope that those measures enable us to deal with the problem. However, the majority of fly-tipped waste is household waste, which cannot be caused by the landfill tax.

Peter Luff: You would rule me out of order, Mr. O'Hara, if I entered into a debate on fly-tipping. My part of the world does not suffer from that problem, although large quantities of waste are produced by garden contractors, for example.
 Money is not the problem with enforcement; money does not solve every problem. Lack of co-ordination of Government policy is the problem. In the case of Ivory Plant Hire, the Environment Agency, the district council, the county council, the police, the vehicle inspectorate, the traffic commissioners, the courts and, probably, others, were involved. If we are to tackle the problem successfully, that is how we should deal with it—rather than throwing money at it.

Stephen Timms: The Environment Agency has a free 24-hour hotline for the public to report any such incidents. That is the kind of measure that is required to tackle the problem.
 The hon. Member for Mid-Worcestershire also asked about the landfill tax credit scheme, as did my hon. Friend the Member for Denton and Reddish. In the longer term, the Government are attracted to replacing all or part of the landfill tax credit scheme with a public spending programme to direct resources towards Government priorities on sustainable waste management. We will consult with interested parties on how the transition to that can be managed to ensure that worthwhile projects, of which there are many examples around the country, continue to attract funding under both the current scheme and any replacement regime. It is important that the resources available here are used to minimise landfill by encouraging recycling, a cause that is dear to my hon. Friend's heart. I am sure that it is dear to the heart of every member of the Committee. 
 The point that was made frequently by every Conservative Member who spoke, albeit in some cases with irony, was whether the increase of £1 a tonne would be fiscally neutral. I can confess that the landfill tax in the coming year will not be fiscally neutral. The Committee has me bang to rights on that. In fact we will give away a lot than we get. The reason is that the 0.2 percentage point reduction in national insurance contributions comes to £690 million. The forecast revenue from the landfill tax is £452 million. In other words, the revenue will be only two thirds of the amount that is being given away. I will gladly give way to the hon. Gentleman. I hope that he will apologise to the Committee.

Oliver Letwin: I may or may not be able to do that. Which 0.2 percentage point reduction in national insurance was it? I hope that it was not the item that we heard about in the context of the aggregates tax.

Stephen Timms: No, certainly not. When the previous Government introduced the landfill tax, they also introduced a reduction in employers' national insurance contributions of 0.2 percentage points. In the coming year—the year that we have just started—the loss of revenue that arises from that reduction is £690 million. The take from the landfill tax would be £462 million. That is the 0.2 percentage points reduction that was introduced at the same time as the landfill tax. [Interruption.] In other words, we are—

Edward O'Hara: Order. I am finding it difficult to follow the Minister because of the distractions on my left.

Stephen Timms: I am attempting to make the position as clear as I possibly can to assist Opposition Members. The revenue from the landfill tax is significantly less than the revenue foregone by the reduction in employers' national insurance contributions introduced by the previous Government at the same time as the landfill tax.

Michael Jack: I will put my hands and apologise if I am wrong, but is not that mathematical argument that he has just announced just a direct consequence of the fact that the Government have put up employers' national insurance contributions?

Stephen Timms: No. The right hon. Gentleman is a former Treasury Minister. He knows how employers' national insurance works. The product of 0.2 percentage points on employers' national insurance is certainly not affected by the rest of the national insurance contributions. It increases because salaries and wages increase. I do not want to add to Conservative Members' embarrassment, but having been pressed I feel that I should make the position clear. When the tax was introduced the cost of the 0.2 percentage point cut in employers' national insurance contributions was costed at £505 million per annum. Even that is more than the revenue projected for the coming year in landfill tax.

Mark Hendrick: Is my hon. Friend saying that the Government are giving tax cuts by stealth?

Stephen Timms: Some might say so. I fear that we will not hear many such allegations from Conservative Members. Having completely shot their fox, I urge the Committee unanimously to accept the clause.

Oliver Letwin: I am grateful to the Financial Secretary. Our proceedings have occasionally descended into torpor. It has sometimes been boring. This charming piece of casuistry has enlivened the proceedings and given us a memory to treasure. Never has a Minister illustrated the vacuity of his logic in so compelling a manner.
 The Financial Secretary's argument is this: a particular cut in national insurance rates was made when the tax was introduced, which was, and was intended to be, fiscally neutral when allied to the tax itself. Fiscal drag has since increased the effect of that rate change. Therefore, according to his logic, it is fiscally neutral now to increase the tax. If that were a logic in which he believed, rather than one with which he chose to amuse the Committee, it would also follow that if the receipts from national insurance contributions at a given rate decreased, it would be correct to decrease the tax. Will the Financial Secretary observe that principle? No, he will not, because the two are wholly disjoined. He has made no change in the rate on national insurance contributions. 
 Sitting suspended for a Division in the House. 
 On resuming—

Oliver Letwin: National insurance contributions are set at a given level, and earn given receipts for the Treasury, in the prevailing economic circumstances. Should they produce more money because of fiscal drag due to prevailing economic circumstances, that in no sense validates the raising of any tax, landfill or otherwise.
 The Financial Secretary was merely amusing himself at the expense of the Committee—or perhaps I should not say that, because he also provided some amusement for the Committee—in order to entertain himself in the dire straits of having to negotiate the Finance Bill. We are left with the same old problem that we started with. The tax increase is not accompanied by an equal and offsetting decrease in the rate of some other tax; therefore it is not a fiscally neutral measure. That is a harbinger that bodes ill, when we attend to the fact that the Government have introduced the climate change and aggregates levies.

Andrew Bennett: Where in Dorset does the hon. Gentleman plan to put the incinerator?

Oliver Letwin: It is clear that Labour Members have reached that stage of the Finance Bill at which they wish to amuse themselves. I assure the hon. Gentleman that I have no more desire than he does to see more incinerators. Nor, as I hope might become evident to the hon. Gentleman—who is expert in such matters—and to the Financial Secretary, have I the least desire to see more landfill sites. However, taxes should not be increased without fiscal neutrality obtaining.

Nick St Aubyn: I am as opposed to incinerators as anyone in the Room; I spoke on the matter in the Westminster Hall this morning. The additional landfill tax would still leave landfill more attractive than incineration on economic grounds, ignoring the environmental grounds. Even the new level of landfill tax is not a disincentive to landfill as opposed to incineration.

Oliver Letwin: My hon. Friend makes telling points. The fact is that the Government are in a complete intellectual mess about such issues. They have no serious cross-elasticity studies or optimality analyses. The Financial Secretary has directly contradicted his own concessions on the aggregates tax this evening. We are facing a Government who make gestures towards environmental taxation, but who actually wish to establish a base for increasing fiscal revenues from whatever source they may, apart from income taxes. That is what we object to and will continue to object to, and I shall ask my hon. Friends to vote against the clause.

Stephen Timms: The hon. Member for Guildford (Mr. St. Aubyn) has obviously been listening to the organisations that have been calling for a higher rate of landfill tax. If he had been here earlier in the debate, he would have heard references to those representations. We should take a cautious step-by-step approach, so that we can see the consequences.
 The position of the hon. Member for West Dorset is now completely incomprehensible. He is working with a definition of fiscal neutrality, but I have no idea what it is. The entire premise of his argument, and that of other Conservative Members, was that the increases in the rate of landfill tax meant that the Government's revenue from the tax was greater than the revenue forgone from the cut in employers' national insurance contributions. The hon. Gentleman has now, admittedly with speed, come up with a new but incomprehensible definition of fiscal neutrality. He should acknowledge that he was wrong and support the clause.

Oliver Letwin: If it were true that the Financial Secretary cannot understand me—which it is not—it would be necessary for me to do what I shall do in any case, which is to spell out the simple analysis of fiscal neutrality. When a tax is raised by the sum of x and accordingly collects revenues of the sum of y, another tax should be decreased so that it reduces the revenues by the sum of y. The two should offset each other. If the Financial Secretary were genuinely in doubt about the need for that marginal fiscal neutrality to maintain a serious intellectual case for environmental taxes, it would be necessary to explain it.
 However, the Financial Secretary is well aware of such matters. The problem is that he does not want to admit it. It is inconvenient to his case, because he has increased the tax and then relied on the fact that some other item happens, through fiscal drag, to be increasing its effect on receipts. That is an intellectually disreputable position—just as disreputable as the position on optimality that he jettisoned so notably earlier. There is no basis left for such a measure, and I shall ask my right hon. and hon. Friends to vote against it. 
 Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 17, Noes 6.

Question accordingly agreed to. 
 Clause 102 ordered to stand part of the Bill.

Clause 103 - Climate change levy

Question proposed, That the clause stand part of the Bill.

Michael Jack: I was intrigued to read that paragraph 11 of the relevant section of the notes on clauses stated:
 ``If the electricity generated is for use in producing hydrocarbon oils, other taxable commodities and uranium, then relief can now be claimed on the input fuel.'' 
Will the Minister who is to reply enlighten the Committee as to what production of uranium is being carried out in Northern Ireland, and why it has been necessary to introduce a relieving measure for the production of this substance? Why has Northern Ireland been marked out for what appears to be special treatment?

Stephen Timms: The clause makes three changes to the climate change levy provisions. First, gas supplied and consumed in Northern Ireland is exempted from the levy, which was announced in last year's Budget. Secondly, and not just in Northern Ireland, generators and exempt unlicensed electricity suppliers can claim relief on the proportion of their input fuel that they use to generate electricity, which is ultimately for an excluded or exempt use. Thirdly, the exemption for combined heat and power stations is extended to those stations operated by third parties, subject to the status of the station. Those are the three changes being made in the clause, and I am confident that the Committee will welcome them.

Michael Jack: That was a delightful reading of the brief, but the Financial Secretary has not answered my question. The explanatory notes state:
 ``If the electricity generated is for use in producing hydrocarbon oils, other taxable commodities and uranium, then relief can now be claimed on the input fuel.'' 
I want to know why that interesting group has been singled out? Will the Financial Secretary clarify whether an advantage will be conferred on third party combined heat and power operations in Northern Ireland, in terms of the climate change levy, which is not available to third party combined heat and power generators on the mainland?

Stephen Timms: The right hon. Gentleman may be suffering under a misapprehension. The second and third changes that I described are not confined in their effect to Northern Ireland. Only the first of the three changes—that gas supplied and consumed in Northern Ireland is exempted from the levy—is confined to Northern Ireland. The other changes apply throughout the United Kingdom.
 On exempt unlicensed electricity suppliers, of which the right hon. Gentleman gave examples, unregulated electricity suppliers are taxed on their input fuels rather than on electricity generated. The provisions in last year's Finance Act meant that they could not claim relief on their input fuel for exempt uses of their electricity. The clause corrects that and ensures equal treatment. 
 Question put and agreed to. 
 Clause 103 ordered to stand part of the Bill. 
 Clause 105 ordered to stand part of the Bill.

New clause 16 - Limited liability partnerships: general

'.—(1) For section 118ZA of the Taxes Act 1988 (treatment of limited liability partnerships) substitute— 
"Treatment of limited liability partnerships. 
118ZA.—(1) For the purposes of the Tax Acts, where a limited liability partnership carries on a trade, profession or other business with a view to profit— 
 (a) all the activities of the partnership are treated as carried on in partnership by its members (and not by the partnership as such), 
 (b) anything done by, to or in relation to the partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and 
 (c) the property of the partnership is treated as held by the members as partnership property. 
References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or other business with a view to profit. 
 (2) For all purposes, except as otherwise provided, in the Tax Acts— 
 (a) references to a partnership include a limited liability partnership in relation to which subsection (1) above applies, 
 (b) references to members of a partnership include members of such a limited liability partnership, 
 (c) references to a company do not include such a limited liability partnership, and 
 (d) references to members of a company do not include members of such a limited liability partnership. 
 (3) Subsection (1) above continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or other business with a view to profit— 
 (a) if the cessation is only temporary, or 
 (b) during a period of winding up following a permanent cessation, provided— 
 (i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and 
 (ii) the period of winding up is not unreasonably prolonged, 
but subject to subsection (4) below. 
(4) Subsection (1) above ceases to apply in relation to a limited liability partnership— 
 (a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or 
 (b) on the occurrence of any event under the law of a country or territory outside the United Kingdom corresponding to an event specified in paragraph (a) above.''. 
 (2) In the Taxation of Chargeable Gains Act 1992, for section 59A (limited liability partnerships) substitute— 
Limited liability partnerships. 
59A.—(1) Where a limited liability partnership carries on a trade or business with a view to profit— 
(a) assets held by the limited liability partnership are treated for the purposes of tax in respect of chargeable gains as held by its members as partners, and 
(b) any dealings by the limited liability partnership are treated for those purposes as dealings by its members in partnership (and not by the limited liability partnership as such); 
and tax in respect of chargeable gains accruing to the members of the limited liability partnership on the disposal of any of its assets shall be assessed and charged on them separately. 
 (2) For all purposes, except as otherwise provided, in the enactments relating to tax in respect of chargeable gains— 
 (a) references to a partnership include a limited liability partnership in relation to which subsection (1) above applies, 
 (b) references to members of a partnership include members of such a limited liability partnership, 
 (c) references to a company do not include such a limited liability partnership, and 
 (d) references to members of a company do not include members of such a limited liability partnership. 
 (3) Subsection (1) above continues to apply in relation to a limited liability partnership which no longer carries on any trade or business with a view to profit— 
 (a) if the cessation is only temporary, or 
 (b) during a period of winding up following a permanent cessation, provided— 
 (i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and 
 (ii) the period of winding up is not unreasonably prolonged, 
but subject to subsection (4) below. 
 (4) Subsection (1) above ceases to apply in relation to a limited liability partnership— 
 (a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or 
 (b) on the occurrence of any event under the law of a country or territory outside the United Kingdom corresponding to an event specified in paragraph (a) above. 
 (5) Where subsection (1) above ceases to apply in relation to a limited liability partnership with the effect that tax is assessed and charged— 
 (a) on the limited liability partnership (as a company) in respect of chargeable gains accruing on the disposal of any of its assets, and 
 (b) on the members in respect of chargeable gains accruing on the disposal of any of their capital interests in the limited liability partnership, 
it shall be assessed and charged on the limited liability partnership as if subsection (1) above had never applied in relation to it. 
 (6) Neither the commencement of the application of subsection (1) above nor the cessation of its application in relation to a limited liability partnership shall be taken as giving rise to the disposal of any assets by it or any of its members.''. 
 (3) In Chapter II of Part V of the Taxation of Chargeable Gains Act 1992 (relief for gifts of business assets), after section 169 insert— 
Cessation of trade by limited liability partnership. 
169A.—(1) This section applies where section 59A(1) ceases to apply to a limited liability partnership. 
(2) A member of the partnership who immediately before the time at which section 59A(1) ceases to apply holds an asset, or an interest in an asset, acquired by him— 
(a) on a disposal to members of a partnership, and 
 (b) for a consideration which is treated as reduced under section 165(4)(b) or 260(3)(b), 
shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time.''. 
 (4) In section 170(9) of the Taxation of Chargeable Gains Act 1992 (groups of companies: meaning of ''company''), in paragraph (b) after ''company'' insert ''(other than a limited liability partnership)''. 
 (5) Subsection (3) above shall be deemed to have come into force on 3rd May 2001 and applies where section 59A(1) of the Taxation of Chargeable Gains Act 1992 ceased or ceases to apply as mentioned in section 169A of that Act (as inserted by that subsection) on or after that date. 
 (6) The other provisions of this section shall be deemed to have come into force on 6th April 2001.'—[Dawn Primarolo.] 
 Brought up, and read the First time.

Edward O'Hara: With this it will be convenient to take the following: Government new clause 17—Limited liability partnerships: investments LLPs and property investment LLPs.
 Government new schedule 2—Limited liability partnerships: investment LLPs and property investment LLPs.

Dawn Primarolo: I understand the Committee's enthusiasm to conclude its business this evening, but it is appropriate for me to make a few comments on Government new clauses 16 and 17 and Government new schedule 2. The hon. Member for Torridge and West Devon (Mr. Burnett) raised some points on the Floor of the House earlier today, which I am sure that he will be anxious to put on the record in Committee, and to which I shall reply.
 New clause 16 confirms that, in general, limited liability partnerships will be treated for tax purposes as partnerships. It will stop chargeable gains held over on business gifts from falling out of charge when the LLP goes into liquidation. The Government's intention has always been to ensure that existing trading and professional partnerships can convert to LLP status without generally incurring a tax penalty or obtaining a tax advantage. If LLPs were taxed as companies, partnerships would face tax complications and possibly tax penalties on conversion to LLPs. 
 New clause 16 amends some of the tax legislation originally introduced by the Limited Liability Partnership Act 2000 to give greater certainty for businesses adopting LLP status. It clarifies and makes explicit the general rule introduced by the Act so that, in general, LLPs are treated as partnerships for tax purposes. It gives clear legal backing to the exceptions to that rule. The new clause does not represent a change in our policy on the taxation of LLPs carrying on a trade or profession. That is illustrated by the fact that the guidance published by the Inland Revenue in the December edition of ``Tax Bulletin'' about LLPs that carry on a trade or profession with a view to profit remains unchanged. That guidance was issued after discussions between the Revenue and accountancy bodies. It has been well received. 
 There is a tidying-up provision in new clause 16 to deal with held-over gains on business gifts. It has a similar effect to the existing legislation introduced by the Limited Liability Partnership Act relating to gains deferred under the business asset roll-over relief provision. The new measure ensures that any gains deferred on the gift of business assets to partners do not fall out of charge when the LLP ceases to carry on a trade or other businesses with a view to profit. Without the measure, tax on the deferred gain would be lost. 
 When the guidance was sent to the parliamentary draftsman for inclusion in the Bill, there was discussion about how extensive the legislation needed to be. Parliamentary counsel considered that, even though new clause 16 represented the practice and translated it, it was not adequately underpinned with the necessary legislative backing. At the time, I was confronted with a large piece of legislation to be added to the Bill. Knowing how members of the Committee take exception to long pieces of legislation that may be unnecessary, I took some time to be convinced that the longer route now before us was correct. I apologise to the Committee, because that means that we have had to discuss the procedure today under a Ways and Means motion. I hope that members of the Committee will agree that, taking on board the comments that they have made to me over many years when discussing the Finance Bill, I needed to be sure that that was how we should proceed. The lesson that I have learned is that parliamentary draftsmen are always right. I follow their advice. 
 New clause 17 and new schedule 2 are designed to prevent tax loss when an LLP carries on the business of making investments generally, and property investments in particular. The Limited Liability Partnership Act 2000 sets out the rules for the registration and conduct of LLPs, although it does not restrict the sort of business that may be carried on by an LLP. It has never been the Government's intention that LLPs should provide opportunities for tax savings over the current entities used by business. 
 New clause 17 and its associated schedule are intended to prevent tax loss through investment and property investment LLPs. The provisions have no relevance to LLPs whose principal income is derived from carrying on a trade or profession. 
 Everyone appreciates that wide consultation has taken place on the proposals, and they have been welcomed. If a comment was made, it was about why the provision was not included in the Finance Bill when originally published. I hope that the Committee will accept that my role in creating that delay was motivated by the best interests of all members of the Committee in considering a long Bill. I commend Government new clauses 16 and 17 and new schedule 2 to the Committee.

Richard Ottaway: The Paymaster General is right that considerable consultation has taken place; the industry has a fair idea of what is coming. She is also right that the matter caused some problems. She has been gracious in her apology for what happened, and I am happy to accept that apology. I leave it to the industry for its reaction.
 To touch on new clause 16, any change involves a law of unintended consequences. In this case, it is quite serious when a limited liability partnership tries to issue eurobonds. LLP legislation was designed to modernise the legal framework within which major international partnerships and joint ventures operate. As the Paymaster General will be aware, such partnerships rely heavily on several different methods of raising capital. One method for a United Kingdom plc to raise capital is through the eurobond market, to which it has ready access without difficulty. 
 The Paymaster General will be aware that in proposed new section 59A(2)(c), 
``references to a company do not include ... a limited liability partnership''. 
Therefore, a limited liability partnership that tries to raise money on the eurobond market will not be competitive, as it will not qualify for the UK withholding tax exemption for interest payments on those bonds—legislation precludes that. Is that intended? Is it an oversight? Is it a matter of policy? If not, the problem could be easily remedied by an amendment on Report tomorrow, placing the words 
``except for eurobonds in section 59A(2)'' 
in the preamble. It is absurd that a major UK PLC should be able to access the eurobond market but a substantial partnership should not be. I hope that the Paymaster General will take that point on board. 
 My second point relates to new clause 17 and new schedule 2. As the Paymaster General said, the proposal is designed to prevent such partnerships being used by property investors, perhaps along the lines of the real estate investment trusts that are widely and commonly used in the United States. However, new schedule 2 leaves it open to non-UK taxpayers and non-UK tax-exempt partnerships to enjoy the benefit of investment in real estate through a UK LLP. She will be aware that tax returns to partner level. If the partner is offshore, that partner is exempt. 
 It is odd that a UK partnership will be precluded by proposed new schedule 2 from enjoying the possible tax-exempt benefits, yet an offshore company operating through a UK limited liability partnership will be caught. Is it the Paymaster General's intention to give that advantage to offshore companies, rather than to UK companies? If that is not her intention—I fully accept that it is difficult to anticipate all such arguments—we will happily table an amendment to be debated tomorrow.

John Burnett: I am grateful to the Paymaster General for referring to the points that I raised on the Floor of the House earlier today. I shall add only one or two points to those.
 The Paymaster General referred to when capital gains are deferred because of held-over relief. In those circumstances, the gains, by virtue of new clause 16, become charged when the business of the LLP comes to an end. I assume that the same goes for assets that receive roll-over relief, and when cash has been applied to the purchase of a business asset used by the LLP. Is the Paymaster General telling us that if the trade of the LLP comes to an end, the assets that have been rolled over will incur a charge to capital gains tax? Does the charge to capital gains tax arise if the asset in question is still used for a trade that may not be the trade of an LLP? 
 I do not know whether I have explained that adequately to the Paymaster General. Let me try again. If assets are purchased by a LLP and roll-over relief is applied for and given, what is the tax position of those assets when the LLP comes to an end? That is the simple question. 
 Additionally, will the Paymaster General comment on assets for which there is a deferred gain, for example because of a hold-over relief claim? Will she confirm that if the LLP changes its business rather than ceases to trade, there will be no attempt by the Inland Revenue to charge capital gains tax? Does the deferred charge tax crystallise only if and when the LLP ceases to trade, not if it changes its trade? 
 I raised one or two other points on the Floor of the House, and I am glad that the Paymaster General has confirmed that the tax principles behind LLPs should mirror those of existing partnerships. She will remember the 1998 Finance Act, when changes were made to the taxation of professions that were on the cash basis of assessment. In those circumstances, such professions must go on to the full earnings basis, and there are transitional provisions in that connection. In fact, the professions go on to a full earnings basis from a cash basis during a transitional period of about eight years. 
 Will the Paymaster General confirm that if a professional group—for example, a firm of solicitors—is four years down the road in that transitional period and becomes a limited liability partnership, there will be no adverse tax consequences, and transitional relief will still apply? I should say at this stage that I am a solicitor and was a partner in a firm. We were assessed on the cash basis, but I have not practised for some three years. I do not have a personal stake, but the points have been made to me by other members of my profession. Will she also confirm that members of an LLP will be taxed under capital gains tax in accordance with their beneficial interests in the disposed assets, rather than on their shares in the LLP? 
 [Dr. Michael Clark in the Chair] 
 I welcome you to the Chair, Dr. Clark. 
 Finally, certain extra-statutory concessions and statements of practice apply to partnerships. Will the Paymaster General confirm that they will still apply to LLPs? I ask particularly about assets that are owned by a member of an LLP and leased to that LLP. I hope that if the other conditions apply, those assets will attract 100 per cent. business or agricultural property inheritance tax relief. Similarly, on capital gains tax, I hope that those leased business assets will comply with and qualify for roll-over relief as well. Those are a couple of the fairly esoteric points that have been made to me about taxation of LLPs, and, as I mentioned them about an hour ago, I look forward to hearing the Paymaster General's response.

Howard Flight: I want to raise one other important point, because the clause deals with the taxation of LLPs. The LLP structure was put in place for the use of law firms, but I noticed that several leading London law firms have used a Delaware vehicle to achieve limited liability, so I made inquiries to find out why. One factor behind the substantial expansion of UK law firms into continental Europe—in essence, the acquisition of law firms in the EU by London companies—has been that under the partnership structure, when, for example, a company merges with a German law firm, the German lawyers joining the partnership may choose to pay UK tax, which is lower than prevailing rates in the EU. Indeed, that is one factor that has driven the aggregation of the mergers of law firms. For reasons that I do not fully understand, that does not work if the new LLP structure is used, which is why the Delaware vehicle is being used as an alternative.
 It is quite important because this commercial development has been wholly in the interests of the UK, and UK law firms are acquiring businesses and considerable power in continental Europe. The LLP is intended to be useful and effective specifically for professional businesses, but on a rather important tax issue that underpins everything that is happening, it loses the structure that was previously available to partnerships. 
 The issue is not necessarily UK taxation, but tax treaty agreements between the UK and continental Europe. However, the Paymaster General and her advisers could usefully consider the matter, because unless we can achieve what is already in place, LLPs will not be much use for their primary objective.

Dawn Primarolo: We could usefully consider the hon. Gentleman's point and we shall—subsequently.
 The hon. Member for Croydon, South (Mr. Ottaway) talked about unintended consequences for eurobonds. In general, LLPs will be treated as partnerships for tax purposes. The tax consequences concerning eurobonds will be the same for LLPs as for current partnerships. The LLP changes are not designed to change the rules for eurobonds. The hon. Gentleman might want to press for more detail on that point. I think that he suggested an amendment. If, after consideration, I find that that is not the case, he is right that I have a route to deal with it. 
 The hon. Gentleman also made a point about offshore partners. An offshore partner or member will not necessarily be exempt if the property is in the UK. The same consequences will follow for offshore members of an LLP as for offshore partners in a normal partnership. He talked about discrimination, which is not there. 
 The hon. Member for Torridge and West Devon described his points as esoteric. I am not sure that I would describe them as such, but I will do my best to cover the details. My hon. Friend the Financial Secretary has offered to write to the hon. Gentleman, so perhaps I should leave it to him. He is right that we have had time to consider his points, so I can give him some answers on the record. If he is not satisfied, he can say so at the end. If he is satisfied, my hon. Friend will not have to rush back to the office and pen a letter to him before he is allowed to go home this evening. 
 The first question related to the transitional rules for abolition on a cash basis. If, on a conversion, the LLP succeeds to the business previously carried on by an old partnership, the spreading rules for catching upcharge will continue to apply as if the conversion had not occurred. 
 On the second point, while an LLP is carrying on a trade or business with a view to profit, capital gains will be computed according to the members' beneficial interests in the partnership's assets. Partners in a conventional partnership are taxed on exactly the same basis. 
 On the question of extra-statutory concessions and a statement of practice to cover LLPs, they will be amended when the law is settled. In particular, the Inland Revenue guidance in the tax bulletin, which I mentioned at the beginning of the debate, referred to the statement of practice D12 and extra-statutory concession A43, which will need amending for the reasons that the hon. Gentleman advanced on the Floor of the House. When gains are deferred under rollover relief, the gains will be clawed back when the LLP ceases to trade with a view to profit; that measure was included in the LLP Act. Gains deferred under gifts relief or rollover relief will be clawed back only when the LLP ceases to trade with a view to profit. If it switches from one trade to another, there will be no clawback. 
 I think that that covers the points raised by the hon. Gentleman, but if it does not spare my hon. Friend the Financial Secretary from writing to him, perhaps he could say so now so that I can pass the baton to him and a letter can be dispatched this evening.

John Burnett: It dealt admirably with my points, and I am grateful to the Paymaster General. However, I have an extra point, which is slightly tedious. A cash basis firm in transition may merge with a firm that is not in transition to form an LLP. Will the Financial Secretary or Paymaster General confirm, in due course, that there is no clawback in such a case?
 I am especially pleased to note that under general law principles there should not be a problem for rollover relief in any event if a trade is changed. I am glad to hear that the gain will not be crystallised if the LLP changes its trade and there is a holdover gain.

Richard Ottaway: I put two clear points to the Paymaster General, to which she gave two clear responses, from which I can only conclude that the Government intend to pursue the policy they have advanced. All I would say is that it will erode Britain's competitive position and UK plcs will suffer to the advantage of offshore property companies and in the eurobond market.
 Question put and agreed to. 
 Clause read a Second time, and added to the Bill.

New clause 17 - Limited liability partnerships: investment LLPs and property investment LLPs

'.—(1) Schedule (Limited liability partnerships: investment LLPs and property investment LLPs) to this Act has effect with respect to limited liability partnerships whose business consists wholly or mainly in the making of investments. 
 (2) The provisions of that Schedule shall be deemed to have come into force on 6th April 2001.'—[Dawn Primarolo.] 
Brought up, read the First and Second time, and added to the Bill.

Dawn Primarolo: On a point of order, Dr. Clark. What happens to new schedule 2?

Edward O'Hara: We have discussed it with new clause 16 and will vote on it in its proper order. New clause 18 Interest on unpaid tax, etc.: foot-and-mouth disease

New clause 18 - Interest on unpaid tax, etc.: foot-and-mouth disease

'.—(1) This section applies in any case where, in exercise of their powers of care and management, the Commissioners of Inland Revenue agree that, by reason of circumstances arising as a result of the outbreak of foot-and-mouth disease, the payment of tax by a person may be deferred. 
 For this purpose ''tax'' includes any amount chargeable by way of tax, or as a result of the non-payment of tax, in respect of which interest would, apart from this section, be chargeable. 
 (2) Where this section applies no interest on the amount deferred shall be chargeable in respect of the period— 
 (a) beginning with 31st January 2001 or, if the Commissioners so direct in any case, any later date from which the agreement for deferred payment has effect, and 
 (b) ending with the date on which the agreement for deferred payment ceases to have effect. 
 (3) An agreement for deferred payment ceases to have effect at the end of the period of deferment specified in the agreement, subject as follows. 
 An agreement for deferred payment shall be treated as not ceasing to have effect if, or to the extent that, the Commissioners agree (whether before or after the end of the period of deferment specified in the agreement) to extend that period by reason of circumstances arising as a result of the outbreak of foot-and-mouth disease. 
 (4) For the purposes of subsection (3) as it applies to an agreement for payment by instalments, the period of deferment in relation to each instalment ends with the date on or before which that instalment is to be paid. 
 But if any instalment is not paid by the agreed date and the Commissioners do not agree in accordance with that subsection to extend the period of deferment, the whole agreement shall be treated as ceasing to have effect on that date. 
 (5) This section shall cease to have effect on a date specified by the Treasury by order made by statutory instrument. 
 This is without prejudice to its continued operation in relation to an agreement for deferred payment made by the Commissioners before the specified date. 
 (6) This section applies— 
 (a) whether the agreement for deferred payment was made before or after the passing of this Act, and 
 (b) whether the agreement for deferred payment was made before or after the amount to which it relates became due and payable. 
 (7) If in any case the Commissioners are satisfied that, although no agreement for deferred payment such as is mentioned in subsection (1) was made, such an agreement could have been made, this section shall apply as if such an agreement had been made. 
 The terms of the notional agreement shall be assumed to be such as the Commissioners are satisfied would have been agreed in the circumstances.'.—[Dawn Primarolo.] 
Brought up, read the First and Second time, and added to the Bill.

New clause 12 - Environmental protection rebates scheme

(1) The Treasury may by order made by statutory instrument introduce a scheme of rebates to those persons charged with the aggregates levy and who have employed environmental protection measures in the process of commercial exploitation of aggregate; 
 (2) Environmental protection measures in this part are those measures which the Secretary of State shall by order determine to be in the interests of protecting or enhancing the environment; 
 (3) No rebate under this scheme shall be made unless the environmental protection measures: 
 (a) relate directly to the process of commercial exploitation of aggregate; and 
 (b) shall have been verified and certified by an external body prescribed for that purpose by the Secretary of State; 
 (4) A statutory instrument containing an order under this section shall not be made without prior consultation with those persons appearing to the Secretary of State to be representative of those having an interest in: 
 (i) the commercial exploitation of aggregate; 
 (ii) the protection of the natural environment; 
 (iii) the local communities affected. 
 (5) A statutory instrument containing an order under this section shall be laid before Parliament and approved by resolution of the House of Commons.'.—[Mr. Malcolm Bruce.] 
 Brought up, and read the First time.

Malcolm Bruce: I beg to move, That the clause be read a Second time.
 The Committee will be aware that we debated this matter on the Floor of the House but were unable to debate the new clause. Many of us remain concerned about the slightly crude impact of the aggregates tax without any compensation and adjustment for the environmental impact. Representing, as I do, a rural constituency in Scotland, I am aware that there is a particular concern that the crudely imposed tax will fall disproportionately on those quarries that can produce at lower cost because it is a cash tonnage figure rather than a percentage. It penalises the more efficient operators. It may also cause smaller operators to be squeezed out in favour of the larger operators. As a consequence, the local authorities in the rural parts of the north of Scotland and the borders, which own many of these quarries, will find that the costs will go up from a squeezed revenue base with no offsetting benefit. 
 The clause would introduce a scheme to allow rebates for environmental improvements. I do not wish to detain the Committee, but this is important. I hope that the Minister can at least acknowledge that this concern continues and that there is a worry that the claimed environmental benefits of the tax will not turn out as the Government expect. I hope that the Government will be prepared to review the workings of the tax and to reconsider this proposal to ensure that a tax that is being introduced for claimed environmental reasons turns out to be environmental. There are many who believe that it will not. At the end of the day, it will be catalogued as just another stealth tax, just another opportunity to raise revenue from a particular sector that will cost local authorities money and will not achieve environmental gain. If the clause were adopted, environmental gain would be a condition of the implementation of the tax.

Stephen Timms: I can be helpful. We announced in the Budget that we are attracted to the idea of differential rates of aggregates levy for green quarries—the principle that is set out in the new clause. We are exploring with a variety of interested parties how such a scheme might be achieved in practice. There are some significant practical problems to be overcome, not least in defining exactly what a green quarry is. We need to know how those issues can be resolved in a practical and workable way before introducing legislation.
 I recognise that the clause is enabling legislation and that accepting it would not commit the Government to very much, but further work is needed to resolve the practical issues surrounding the idea of a green quarry rebate. That work needs to be done before we legislate. The time to legislate is when we know exactly where we are heading, not when we are just guessing, which is what the new clause does. We are attracted to the principle that the clause sets out. We want to explore with all those affected how we can make this successful. When we have done that, we will introduce legislation if we can.

Oliver Letwin: Is the hon. Gentleman aware of the irony of his remarks? It would indeed have been better if the Government had known where they were heading before they implemented the legislation. Had they known where they were heading, they could have had a clause like this new clause.

Stephen Timms: The provision in the Bill is completely clear. It is important that we make progress to deal with an important environmental issue. That is what the introduction of the levy will achieve. Beyond that we think that it is right to look at ways in which we can introduce a scheme that deals differently with green quarries. We will certainly seek to consult all those parties that are identified in paragraph 4 of the new clause. The hon. Gentleman suggested that we are introducing a stealth tax. I refer him to an earlier debate in Committee, in which it was mentioned that the introduction of the aggregates levy will be revenue neutral, because there will be a reduction in employers' national insurance contributions plus the new sustainability fund, which will account for all the proceeds from the levy.

Malcolm Bruce: I accept the Government's undertaking that the aggregates levy will be revenue neutral across the piece, but it will not necessarily be revenue neutral to the businesses that are directly affected. If it were, it would be pointless and would have no effect. Under different circumstances, I might take the matter a little further. However, I wish to put on the record that my hon. Friend the Member for Torridge and West Devon and I remain concerned that the Government are pressing ahead without addressing how we might find a solution to the problem. The Government have been forewarned about casualties—which might still materialise—and anomalies, in which quarries are encouraged to do things that are not environmentally friendly provided that they export their products and in which we actually choose to use import substitutions for things that we can produce domestically, to get around the levy. Such anomalies will emerge.
 Generally, environmental taxes have merit. However, the more of them there are and the more complicated they are, the less impact they have and the more distorted the result. I accept that the Financial Secretary has acknowledged that there is a problem and that the Government are prepared to continue examining it. In the spirit of his response and assurances—and in view of the time—I beg to ask leave to withdraw the motion. 
 Motion and clause, by leave, withdrawn.

Edward O'Hara: We now come to new clause 13, with which it will be convenient to debate new clause 14.

John Burnett: In view of the time constraints, and since we hope to have an opportunity to discuss the matters tomorrow, we will not move the new clause. New schedule 2 Limited liability partnerships: investment LLPs and property investment LLPs

New schedule 2 - Limited liability partnerships: investment LLPs and property investment LLPs

Meaning of ``investment LLP'' and ``property investment LLP''
1.—(1) In Part XIX of the Taxes Act 1988 (supplementary provisions), after section 842A insert—
``Meaning of ``investment LLP'' and ``property investment LLP''
842B.—(1) In this Act—
(a) an ``investment LLP'' means a limited liability partnership whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom; and
(b) a ``property investment LLP'' means a limited liability partnership whose business consists wholly or mainly in the making of investments in land and the principal part of whose income is derived therefrom.
(2) Whether a limited liability partnership is an investment LLP or a property investment LLP is determined for each period of account of the partnership.
A ``period of account'' means any period for which accounts of the partnership are drawn up.''.
 (2) In section 832(1) of that Act (interpretation of the Tax Acts), at the appropriate place insert—
``investment LLP'' and ``property investment LLP'' have the meaning given by section 842B;''.
 (3) In section 288(1) of the Taxation of Chargeable Gains Act 1992 (interpretation), at the appropriate place insert—
``property investment LLP'' has the meaning given by section 842B of the Taxes Act;''.
Pension funds, &c.: exclusion of exemptions from tax in case of income from property investment LLPs
2. In Chapter VI of Part XIV of the Taxes Act 1988 (pension schemes, &c.: miscellaneous provisions), after section 659C insert—
``Treatment of income from property investment LLPs
659D.—(1) The exemptions specified below do not apply to income derived from investments, deposits or other property held as a member of a property investment LLP.
 (2) The exemptions are those provided by—
section 592(2) (exempt approved schemes),
section 608(2)(a) (former approved superannuation funds),
section 613(4) (Parliamentary pension funds),
section 614(3) (certain colonial, &c. pension funds),
section 614(4) (the Overseas Service Pension Fund),
section 614(5) (other pension funds for overseas employees),
section 620(6) (retirement annuity trust schemes), and
section 643(2) (approved personal pension schemes).
 (3) The income to which subsection (1) above applies includes relevant stock lending fees, in relation to any investments, to which any of the provisions listed in subsection (2) above would apply by virtue of section 129B.
 (4) Section 659A (treatment of futures and options) applies for the purposes of subsection (1) above.''.
Pension funds, &c.: exclusion of exemption from trusts rate in case of income from property investment LLPs
3.—(1) Section 686 of the Taxes Act 1988 (accumulation and discretionary trusts: special rates of tax) is amended as follows.
 (2) In subsection (2)(c) (income excluded from trusts rate or Schedule F trusts rate), before the words ``income from investments, deposits or other property'' (which relate to income of certain pension funds or schemes) insert ``, subject to subsection (6A) below,''.
 (3) After subsection (6) insert—
``(6A) The exemptions provided for by subsection (2)(c) above in relation to income from investments, deposits or other property held as mentioned in sub-paragraph (i) or (ii) of that paragraph do not apply to income derived from investments, deposits or other property held as a member of a property investment LLP.''.
Pension funds, &c.: exclusion of exemptions in case of gains from property investment LLPs
4. In section 271 of the Taxation of Chargeable Gains Act 1992 (miscellaneous exemptions), after subsection (11) insert—
``(12) Subsection (1)(b), (c), (d), (g) and (h) and subsection (2) above do not apply to gains accruing to a person from the acquisition and disposal by him of assets held as a member of a property investment LLP.''.
Insurance companies: treatment of income or gains arising from property investment LLP
5. In Chapter I of Part XII of the Taxes Act 1988 (insurance companies, &c.), after section 438A insert—
``Income or gains arising from property investment LLP
438B.—(1) Where an asset held by an insurance company as an asset of its long term business fund is held by the company as a member of a property investment LLP, the policy holders' share of any income arising from, or chargeable gains accruing on the disposal of, the asset which—
(a) is attributable to the company, and
(b) would otherwise be referable by virtue of section 432A to pension business,
shall be treated for the purposes of the Corporation Tax Acts as referable to basic life assurance and general annuity business.
 (2) For the purposes of this section the property business of the insurance company for the purposes of which the asset is held shall be treated as a separate business.
``Property business'' means a Schedule A business or overseas property business.
 (3) Where (apart from this subsection) an insurance company would not be carrying on basic life assurance and general annuity business, it shall be treated as carrying on such business if any income or chargeable gains of the company are treated as referable to the business by virtue of subsection (1) above.
 (4) A company may be charged to tax by virtue of this section—
(a) notwithstanding section 439A, and
(b) whether or not the income or chargeable gains to which subsection (1) above applies is taken into account in computing the profits of the company for the purposes of any charge to tax in accordance with Case I of Schedule D.
 (5) The policy holders' share of income or chargeable gains to which subsection (1) above applies—
(a) shall not be treated as relevant profits for the purposes of section 88 of the Finance Act 1989 (corporation tax on policy holders' fraction of profits), and
(b) shall not be treated as part of the BLAGAB profits for the purposes of section 88A of that Act (lower corporation tax rate on certain profits);
but the whole of the income or gains to which that subsection applies shall be chargeable to tax at the rate provided by section 88 of that Act.
 (6) So far as income is brought into account as mentioned in section 83(2) of the Finance Act 1989, sections 432B to 432F (apportionment of receipts brought into account) have effect as if subsection (1) above did not apply.
Determination of policy holders' share for purposes of s.438B
438C.—(1) For the purposes of section 438B the policy holders' share of any income or chargeable gains to which subsection (1) of that section applies is what remains after deducting the shareholders' share.
 (2) The shareholders' share is found by applying to the whole the fraction—
A
B
where—
A is the amount of the profits of the company for the period which are chargeable to tax under section 436; and
B is an amount equal to the excess of—
(a) the amount taken into account as receipts of the company in computing those profits (apart from premiums and sums received by virtue of a claim under a reinsurance contract), over
(b) the amounts taken into account as expenses in computing those profits.
 (3) Where there is no such excess as is mentioned in subsection (2) above, or where the profits are greater than any excess, the whole of the income or gains is treated as the shareholders' share.
 (4) Subject to that, where there are no profits none of the income or gains is treated as the shareholders' share.''.
Insurance companies: double taxation relief
6. In section 804B of the Taxes Act 1988 (double taxation relief: company carrying on more than one category of life assurance business: restriction of credit)—
(a) in subsection (2) after ``sections 432ZA to 432E'' insert ``or section 438B'', and
(b) in subsection (4) after ``section 432A'' insert ``or 438B''.
Insurance companies: capital allowances
7. In section 545 of the Capital Allowances Act 2001 (life assurance business: investment assets), for subsection (3) substitute—
``(3) Any allowance under this Act in respect of an investment asset shall be treated as referable to the category or categories of business to which income arising from the asset is or would be referable.
If income so arising is or would be referable to more than one category of business, the allowance shall be apportioned in accordance with sections 432ZA to 432E, or section 438B, of ICTA in the same way as the income.''.
Friendly societies: exclusion of exemptions from tax
8.—(1) In section 460 of the Taxes Act 1988 (friendly societies: exemption from tax in respect of life or endowment business), in subsection (2) (restrictions on exemption) after paragraph (ca), and before the word ``and'' following that paragraph, insert—
``(cb) shall not apply to profits arising from investments, deposits or other property held as a member of a property investment LLP;''.
 (2) In section 461 of that Act (registered friendly societies: exemption from tax on other business), after subsection (3) insert—
``(3A) The exemption conferred by subsection (1) above does not apply to profits arising from investments, deposits or other property held as a member of a property investment LLP.''.
 (3) In section 461B of that Act (incorporated friendly societies: exemption from tax on other business), after subsection (2) insert—
``(2A) Subsection (1) above shall not apply to any profits arising or accruing to the society from or by reason of its membership of a property investment LLP.''.
Exclusion of relief on loans to buy into investment LLP
9. In section 362(2) of the Taxes Act 1988 (interest relief on loans to buy into partnership: conditions to be met), in paragraph (a) for the words from ``otherwise'' to ``1907'' substitute—
``otherwise than—
(i) as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907, or
(ii) as a member of an investment LLP;''.'—[Dawn Primarolo.]
 Brought up, read the First and Second time, and added to the Bill. 
 Clauses 106 and 107 ordered to stand part of the Bill. 
 Schedule 32 agreed to. 
 Clause 108 ordered to stand part of the Bill.

Dawn Primarolo: On a point of order, Dr. Clark. As we appear to be moving swiftly to the 7 o'clock guillotine, I thought that it would be appropriate to put on record the Committee's thanks to you and to your Deputy Chairmen, Mr. O'Hara and Mr. Hood, for steering us expertly through the Committee. I thank the Clerks, the police, the attendants, and the Hansard staff. I also thank the civil servants of the Inland Revenue and Customs and Excise for their assistance encouragement, patience, forbearance and tolerance. They sat silently through the proceedings without wishing to enter into the discussion, which demonstrated their great reserve.
 I also thank the Opposition team led by the hon. Member for West Dorset, especially as we have progressed through the Finance Bill in unusual circumstances. I cannot promise that we will proceed through it as swiftly in future years, but if he is prepared to assist us from the Opposition Benches next year, we will do our best to make similar progress. 
 All Opposition Members, including the hon. Member for Kingston and Surbiton and his team, have participated in the proceedings with patience and good humour. Some of them have displayed a little irritation with the Government on occasions, but Opposition Members are allowed to do that. The hon. Member for Arundel and South Downs is nodding. I do not understand why. He fell asleep in the Committee this afternoon and had to be woken by his hon. Friends, so he should be careful. However, he is about due for his nicotine fix, and a Committee would not be a Committee if he was not told that he should give up smoking, as it is bad for his health. 
 I also thank my hon. Friends. They are an excellent collection of politicians, and many of them are Members of Parliament of great experience. They have patiently assisted the progress of the Bill, and are now raring to leave the Committee to return to more pressing considerations, following the Prime Minister's announcement earlier today—except for my hon. Friend the Member for West Ham (Mr. Banks), who is desperate for a beer, and can now escape to the Terrace to drink it. 
 Finally, Dr. Clark, I again thank you for your support during the proceedings.

Oliver Letwin: Further to that point of order, Dr. Clark. I heartily reciprocate the Paymaster General's generous sentiments, and I join in her eloquent thanks to all the third parties, and to my hon. Friends, who have notably participated in the Committee, as they did, at greater length, in last year's proceedings. We look forward to a similar level of scrutiny and constructive participation from the Labour Opposition, following the events to which we are now drawn.
 I also join the Paymaster General in thanking the Chairmen. However, I wish to conclude with a special tribute to you, Dr. Clark, as these are probably the last proceedings of the House with which you will be involved. I note that you have been a Member of Parliament for 18 years, and many of us hope to emulate that long service. Throughout that time, you have been an adornment to the House, and to the Committee. Indeed, there were even moments when one suspected that you understood what was happening in the Committee, when some of the rest of us doubted whether we did. 
 It has been a pleasure to serve under your chairmanship. We shall be the poorer at the next Finance Bill, as it will be the first one for a long while not to benefit from your chairmanship. 
 As on previous occasions, the ministerial team have done great duty by answering the points that have been raised, and by keeping us amused at times when our attention might otherwise have flagged.

John Burnett: I thank the Chairmen, for their marvellous chairmanship, but, in particular, I thank you, Dr. Clark. You have the good taste of knowing my part of the world very well, as you visit the west country. I also thank your staff, the Hansard staff, the officials from the Inland Revenue, the attendants, and so forth. It has been an enjoyable Finance Bill, and my party colleagues and I endorse the earlier comments.

Edward O'Hara: I thank hon. Members for their generous comments about me and my fellow Chairmen.
 I offer personal thanks to Mr. Jimmy Hood for standing in for me when I was moving house last week. I, too, was taken by surprise at the fact that we did not have an early general election, and my house was sold, so I had nowhere to live. 
 Many hon. Members are part of the old team that met during the proceedings on last year's Finance Bill. The new team has also been good, and I thank all hon. Members for their co-operation. I also thank the Clerk for the assistance that he has given to me and the whole Committee 
 As events have proceeded at such great pace today and during recent weeks, I am afraid that I have not had the opportunity to arrange a room where Committee members can have a drink together to celebrate the end of consideration of the Bill. However, tomorrow will be a nice summer day, and I should be happy for people to join me on the Terrace for a glass of Pimms at lunchtime. 
 Bill, as amended, to be reported. 
Committee rose at Seven o'clock.